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Rebekah Co. provides following info about its defined benefit pension plan for the year 2011. Service cost…………………… $ 90,000 Contribution to plan………….$105,000.

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Presentation on theme: "Rebekah Co. provides following info about its defined benefit pension plan for the year 2011. Service cost…………………… $ 90,000 Contribution to plan………….$105,000."— Presentation transcript:

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3 Rebekah Co. provides following info about its defined benefit pension plan for the year Service cost…………………… $ 90,000 Contribution to plan………….$105,000 Prior service cost amortization.. $10,000 Actual and expected return on P.A. $64,000 Benefits paid…………………… $40,000 Plan assets at 1/1/11………………………$640,000 Projected Benefit Obligation at 1/1/11…. $800,000 AOCI (PSC) at 1/1/11…………………..… $150K Interest/discount (settlement) rate…………. 10%

4 Compute the pension expense for the year ervice Cost: nterest Cost eturn on Plan Assets (actual) rior Service Cost Amortization ain r oss Component $90,000 $80,000 Beg PBO x i/r $800K x.10 $64,000( ) $10,000

5 Compute the pension expense for the year ervice Cost: nterest Cost eturn on Plan Assets (actual) rior Service Cost Amortization ain r oss Component $90,000 $80,000 Beg PBO x i/r $800K x.10 $64,000( ) $10,000 $116,000

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7 Using information from E 20-2 prepare a PENSION WORKSHEET inserting 1/1/11 balances, showing December 31, 11 balances and the journal entry recording pension expense. What does the LEFT side of the PWS show? FORMAL ENTRIES? which means? They get shown on the Balance Sheet, Income Statement or Comprehensive Income Statement What does the RIGHT side of the PWS show? INFORMAL ENTRIES? which means? They get put in the footnotes

8 Items Dr Pension Expense Cr Pension Asset/Liab Cr Cash PBOPlan Assets Beg Bal at 1/1/11 Service Cost Interest Cost Actual Return Contributions CrDr Start by filling in 1/1/11 figures……….

9 Items Dr Pension Expense Cr Pension Asset/Liab Cr Cash PBO Plan Assets Beg Bal at 1/1/11 Service Cost Interest Cost Actual Return Contributions Cr Dr $800,000Cr$640,000Dr Dr. OCI PSC $160,000Cr They have outstanding debt of $800,000 but have set aside $640,000 to cover it. Thus they must show a pension Liability of $160,000.

10 Items Dr Pension Expense Cr Pension Asset/Liab Cr Cash PBO Plan Assets Beg Bal at 1/1/11 Service Cost Interest Cost Actual Return Contributions Cr Dr $800,000Cr$640,000Dr Dr. OCI PSC $160,000Cr $90,000 Dr $90,000 Cr $80,000 Dr $80,000 Cr $64,000 Cr. $64,000 Dr. Amtz of PSC $10,000 Dr. $10,000 Cr. $105K Cr $105K Dr Benefits Paid $40,000 Dr$40,000 Cr Jrn ent. $116,000 Dr 105K Cr 10,000 Cr

11 Items Dr Pension Expense Cr Pension Asset/Liab Cr Cash PBO Plan Assets Beg Bal at 1/1/11 Service Cost Interest Cost Actual Return Contributions Cr Dr $800,000Cr$640,000Dr Dr. OCI PSC $160,000Cr $90,000 Dr $90,000 Cr $80,000 Dr $80,000 Cr $64,000 Cr. $64,000 Dr. Amtz of PSC $10,000 Dr. $10,000 Cr. $105K Cr $105K Dr Benefits Paid $40,000 Dr$40,000 Cr Jrn ent. $116,000 Dr 105K Cr 10,000 Cr Pension Expense….$116,000 Cash……………….$105,000 AOCI (PSC)………$10,000 Pension Asset/Liab $ 1,000 $1,000 Cr

12 Items Dr Pension Expense Cr Pension Asset/Liab Cr Cash PBO Plan Assets Beg Bal at 1/1/11 Service Cost Interest Cost Actual Return Contributions Cr Dr $800,000Cr$640,000Dr Dr. OCI PSC $160,000Cr $90,000 Dr $90,000 Cr $80,000 Dr $80,000 Cr $64,000 Cr. $64,000 Dr. Amtz of PSC $10,000 Dr. $10,000 Cr. $105K Cr $105K Dr Benefits Paid $40,000 Dr$40,000 Cr Jrn ent. $116,000 Dr105K Cr 10,000 Cr$1,000 Cr Acc OCI 12/31/10$150,000Dr. Bal 12/31/11 $140,000Dr $930,000 Cr $769,000Dr Pension Expense….$116,000 Cash……………….$105,000 AOCI (PSC)………$10,000 Pension Asset/Liab $ 1,000

13 Items Dr Pension Expense Cr Pension Asset/Liab Cr Cash PBO Plan Assets Beg Bal at 1/1/11 Service Cost Interest Cost Actual Return Contributions Cr Dr $800,000Cr$640,000Dr Dr. OCI PSC $160,000Cr $90,000 Dr $90,000 Cr $80,000 Dr $80,000 Cr $64,000 Cr. $64,000 Dr. Amtz of PSC $10,000 Dr. $10,000 Cr. $105K Cr $105K Dr Benefits Paid $40,000 Dr$40,000 Cr Jrn ent. $116,000 Dr105K Cr 10,000 Cr$1,000 Cr Acc OCI 12/31/10$150,000Dr. Bal 12/31/11 $140,000Dr $930,000 Cr $769,000Dr $ Cr Reconciliation: $930,000 CR - $769,000 DR $161,000 CR

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15 The following facts apply to pension of Trudy Borke for year 11: Plan assets 1/1/11………………….. $490K PBO (1/1/11)………………………… 490K Settlement rate………………………. 8.5% Annual pension service cost………. $40,000 Contributions (funding)…………… $30,000 Actual return on plan assets……….. $49,700 Benefits paid to retirees……………. $33,400 Required: Using data above, compute pension expense for 11 by doing a PWS.

16 Items Dr Pension Expense Cr Pension Asset/Liab Cr Cash PBOPlan Assets Beg Bal at 1/1/11 Service Cost Interest Cost Actual Return Contributions CrDr $490,000 40,000Dr 40,000Cr $41,650Dr ($490K x.085) $41,650Cr $49,700Cr $49,700Dr 30,000Cr30,000Dr Benefits paid 33,400Cr 33,400Dr Journal: $31,950Dr $30,000Cr $1,950Cr $1,950Cr $538,250Cr $536,300Dr

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18 The following defined pension data of Doreen Corp. apply to the year 11. PBO (1/1/11 before amendment)…….. $560,000 Plan assets (1/1/11)……………………. 546,200 Pension liability …………. 13,800 On 1/1/11 through amendment, grants prior service benefits with PV of……. 100,000 Settlement Rate………………………9% Annual pension service cost………….. 58,000 Contributions (funding)……………… 55,000 Actual (expected) return on P.A…. 52,280 Benefits paid to retirees…………….. 40,000 Prior service cost amortization for 11 17,000 Required: Prepare PWS.

19 Items Dr Pension Expense Cr Pension Asset- Liab Cr Cash PBOPlan Assets Beg Bal at 1/1/11 Service Cost Interest Cost Actual Return Contributions CrDr $13,800Cr$560,000Cr$546,200Dr Dr OCI- PSC 58,000Dr 58,000Cr $59,400Dr $59,400Cr ( $660,000 x.09) $52,280Cr $52,280Dr Amortz of PSC $17,000Dr $17,000Cr 55,000Cr55,000Dr Benefits paid 40,000Cr40,000Dr $100,000Dr $100,000CrFrom PSC amendment $82,120Dr $55K Cr $110,120Cr $83,000Dr $737,400Cr $613,480Dr

20 Items Dr Pension Expense Cr Pension Asset- Liab Cr Cash PBOPlan Assets Beg Bal at 1/1/11 Service Cost Interest Cost Actual Return Contributions CrDr $13,800Cr$560,000Cr$546,200Dr Dr OCI- PSC 58,000Dr 58,000Cr $59,400Dr $59,400Cr ( $660,000 x.09) $52,280Cr $52,280Dr Amortz of PSC $17,000Dr $17,000Cr 55,000Cr55,000Dr Benefits paid 40,000Cr40,000Dr $100,000Dr $100,000CrFrom PSC amendment $82,120Dr $55K Cr $110,120Cr $83,000Dr $737,400Cr $613,480Dr RECONCILIATION PBO $737,400 - Plan Assets $613, Pension Liability $123,920 $123,920

21 Exercise 20-8

22 Dougherty Corp. has beg-of-year PVs for its PBO and MRVPA. PBOMRVPA 2009$2,000,000$1,900, ,400,000 2,500, ,900,000 2,600, ,600,000 3,000,000 The average remaining service life per employee in 09 and 10 is 10 years and in 11 and 12 is 12 years. The net gain or loss that occurred during each year is as follows: 2009, $280,000 loss; 2010 $90,000 loss 2011 $10,000 loss 2012 $25,000 gain (In working the solution the gains and losses must be aggregated to arrive at year-end balances). Using the corridor approach, compute the amount of net gain or loss amortized and charged to pension expense in each of the four years, setting up an appropriate schedule.

23 OCI Gains and Losses Unexpected Gains and Losses Unexpected Gains and Losses Liability Gains and Losses Actuary PBO not equal to Book PBO Actual RPA not equal to expected RPA Actual RPA not equal to expected RPA

24 What is the corridor in 2009? Beg PBO $2,000,000 x.10 = $200,000 vs Beg MRVPA $1,900,000 x.10 = $190,000 How much OCI loss gets over the corridor in 2009? NONE! Because there was no balance at 1/1/09 * The $280,000 loss was incurred DURING 2009.

25 What is the corridor in 2010? Beg PBO $2,400,000 x.10 = $240,000 vs Beg MRVPA $2,500,000 x.10 = $250,000 How much OCI loss gets over the corridor in 2010? $280,000 - $250,000 = $30,000/10 = $3,000

26 How much OCI loss gets over the corridor in 2010? $280,000 - $250,000 = $30,000/10 = $3,000 How much of the 1/1/10 OCI loss is still left? $280,000 - $3,000 = $277,000 So whats the balance at 1/1/11 of OCI gain/loss? $277,000(from 09) + $90,000(during 10) = $367,000

27 What is the corridor in 2011? Beg PBO $2,900,000 x.10 = $290,000 vs Beg MRVPA $2,600,000 x.10 = $260,000 How much OCI loss gets over the corridor in 2011? $367,000 – 290,000 = $77,000 / 12 = $6,417

28 How much unrecognized loss gets over the corridor in 2011? $367,000 – 290,000 = $77,000 / 12 = $6,417 How much of the 1/1/11 unrecognized loss is still left? $367, ,417 = $360,583 So whats the balance at 1/1/12 of unrecognized gain/loss? $360,583 + $10,000 = $370,583

29 What is the corridor in 2012? Beg PBO $3,600,000 x.10 = $360,000 vs Beg MRVPA $3,000,000 x.10 = $300,000 How much unrecognized loss gets over the corridor in 2012? $370,583 - $360,000 = $10,583/12 = $882 How much of the 1/1/12 unrecognized loss is still left? $370, = $369,701 So whats the balance at 1/1/13 of unrecognized gain/loss? $369,701 - $25,000 gain = $344,701 UNRECOGNIZED LOSS

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31 Mildred Enterprises provides the following information relative to its defined benefit pension plan: Balances or Values at 12/31/11 Projected Benefit Obligation $2,737,000 Accumulated Benefit Obligation ,980,000 Fair value of plan assets... 2,278,329 AOCI (PSC) 205,000 AOCI (G/L) (1/1/11 bal, -0-_ 45,680 Pension liability 207,991 Other pension plan data: Service cost for 2011$ 94,000 Unrecognized prior service cost amtz for ,000 Actual return on plan assets in ,000 Expected return on plan assets in ,680 Interest on January 1, 2011 PBO 253,000 Contributions to plan in ,329 Benefits paid ,000

32 A.Prepare the NOTE disclosing the components of pension expense for year ervice Cost nterest Cost eturn on Plan Assets rior Service Cost ain r oss $94,000 (given) $253,000 (given) $175,680 $45,000 (given) amortization for 2011 NO unrecognized loss adjustment here because beginning balance was zero. $216,320 PENSION EXPENSE.. $216,320 MUST show expected!

33 B.Determine the amounts of other comprehensive income and comprehensive income for Net income for 2011 is $35,000. OTHER COMPREHENSIVE INCOME Amortization of PSC ($45,000) * The amtz of PSC into pension expense makes comprehensive income INCREASE (its like its not in fake NI anymore, its in real NI). Actuarial Loss $45,680 OTHER COMPREHENSIVE LOSS $680

34 B.Determine the amounts of other comprehensive income and comprehensive income for Net income for 2011 is $35,000. COMPREHENSIVE INCOME FOR 2011 Real Net income $35,000 -OCI Loss $ COMPREHENSIVE INCOME $34,320

35 c. Compute the amount of AOCI reported at 12/31/11 Beginning AOCI 1/1/11PSCG/L Beginning Balance $250,000 (205K bal given + 45K which was amtz this year) $0 Amortization of PSC. ($45,000) -- Liability Loss (45,680) Ending balance 12/31/11 $205,000 Dr$45,680 Dr


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